Online Investors to Access Brain Capital

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This summer, the trick of making content pay on the Net may come from an unlikely source: the brokerage houses. A new set of online resources will give investors shares not in businesses, but in a far more precious resource: brain capital.

While current online trading systems pump generic financial newswires like Quote.com, Morningstar, or Reuters Reality, a joint project by investment bank Hambrecht & Quist and Goldman Sachs will launch an online portfolio management service that, for the first time, gives smaller-fry investors a telling glimpse at the inner workings of a major New York brokerage firm.

The Private Invest Management system gives "the little guy" access to Goldman's investment policy committee - "the mind of Goldman Sachs" - said Rodger Mastako of Hambrecht & Quist. H&Q clients with a minimum of US$50,000 will enter the site and fill out a personal profile on their age, number of kids, mortgage information, etc. With that profile, Goldman then provides a quarterly personalized investment portfolio, tailored by their high-power advisers.

"They've got PhDs in finance from the University of Chicago, and Abby Joseph Cohen, the worlds most respected asset allocation guru," said Mastako. "They don't dress pretty, and they've done really boring publishing, but they're really smart." Goldman Sachs "makes nothing on the tool," Mastako added, but the company will see returns from clients' investments in their mutual funds. Hambrecht & Quist, meanwhile, gets 1.25 percent off any trades.

Attracting retail investors comes as a radical change for Goldman, which normally attracts hefty institutional accounts and not individuals. "Goldman doesn't have the infrastructure to support less than $5 million accounts," Mastako said. But the PIM system could eventually be marketed toward smaller investors as well. He noted that "$50,000 is a little artificial. We can do the technology with $500 accounts."

David Weisman, an analyst at Forrester Research, said the project is a simple survival tactic. "They're trying to brand their information."

For three years now, Goldman has targeted its brain capital at a much smaller audience. At a private Web site available only to clients, users can find tools for calculating derivatives, flashy graphics updated on the fly, and useful analytics. "We have used these tools to work with clients over the years, and now we're giving them direct access to the tools," said Goldman Sachs managing director Mike Dubno.

As more refined financial services go digital, the trend will be for even slightly curious investors to take trading into their own hands. "As full-service brokerages put portfolios online, people will want to play the market themselves," said Blake Darcy, CEO of PC Financial Network.

Mastako said the rise in online investment research is occurring because "retail investors don't want to talk to investment brokers." "It's like if you go into an auction house, you want to sit on your hand because if you twitch, someone's going to think 'going to buy,'" he said.

Kathy Levinson, president of E-Trade, forecast that online trading will drive changes in the rules of the investment community. Her firm expects to make first-day access to IPO stocks available to retail customers - who traditionally have had to wait until the next day, after big blocks sold to institutional investors sent prices up. Levinson also expects other demands to surface through electronic trading, like "customers wanting to trade with each other without going through the exchange at all."